CHENG OI KUEN t/a WING YAN FASHION CO v. ONTREND (H.K.) LTD

DCCJ 1339/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1339 OF 2007

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J U D G M E N T

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Background

1.  In September 2005, Ontrend (H.K.) Ltd. ("Ontrend") placed 2 orders with Wing Yan Fashion Co. ("Wing Yan") for the manufacture and sale by Wing Yan of female garments, designated as Styles Nos. SK-8022A and N-5027 ("Female Orders").  A further order was placed in November 2005 for the manufacture and sale by Wing Yan of male garments, designated as Style No. P-346 ("Male Order"). The goods under the Female Orders and the Male Order ("Orders") were all agreed to be “shipped by 30 December 2005”.

2.  It is not in dispute that on 1 December 2005, it was mutually agreed between the parties that the delivery date for all the goods was to be extended to end February 2006 for the Female Orders, and to 29 January 2006 for the Male Order ("1st Extension").  Hence, the “ship by” dates specified under the Orders were extended to end February and 29 January 2006 respectively for the Female Orders and the Male Orders.  Wing Yan's Chinese New Year holiday for 2006 was from about 20 January 2006 to about 8 February 2006, and under the 1st Extension, it was agreed that the goods under the Male Order would be delivered before the Chinese New Year holiday. 

3.  Wing Yan claims that on 13 January 2006, the parties had agreed to a further extension of the date for delivery of the goods to mid March 2006 for the Female Orders and to end February 2006 for the Male Order.  Wing Yan claims that in breach of agreement, Ontrend refused to take delivery of the goods, and seeks payment from Ontrend of the agreed contract price of the goods under the 3 Orders, in the sum of US $99,708, or alternatively damages.

4.  By way of defence, Ontrend denies that there was any further extension of the date for delivery of the goods, and claims instead that Wing Yan was in breach of contract in failing to deliver the goods by the time agreed under 1st Extension.  Ontrend counterclaims for the sum of US $21,498, being the profit it had lost as a result of Wing Yan's failure to ship the goods under the Orders in time.

Issues

5.  The issues for determination at trial are:

(1)  Did the parties agree to extend the shipment date to mid-March 2006 for the Female Orders and to end February 2006 for the Male Order?

(2)   Was Wing Yan in breach of contract by failing to deliver the goods within the agreed time?

(3)  If the answer to (2) is yes, was Ontrend entitled to treat Wing Yan's breach as repudiation of contract and to accept such repudiation?

(4)  If the answer to (3) is yes, what was Ontrend's damage sustained as a result?

6.  In this case, the key issues in dispute between the parties are primarily factual in nature.  In deciding the factual disputes involved, my considerations include: (1) the inherent probability of the parties' assertions; (2) whether the parties' assertions are consistent with their conduct and the contemporaneous documents; and (3) the credibility and demeanor of witnesses.  I do not think that it is necessary to repeat the numerous cases which discussed how these considerations work in resolving factual disputes.  If required, reference can be made to the more recent cases such as Esquire (Electronics) Ltd. v.  The Hong Kong & Shanghai Banking Corporation Ltd., CACV No. 312 of 2005 (12 October 2006) and Profit Boat Development Ltd. v. Craft Projects (Hong Kong) Company Ltd., HCCT 122 of 2000 (31 August 2007). 

Did the parties agree to extend the shipment date to mid-March 2006 for the Female Orders and to end February 2006 for the Male Order?

7.  The case turns on whether the parties had, at a meeting held on 16 January 2006 (“Meeting”) between Miss Lee of Wing Yan and Mr. Sajnani of Ontrend, mutually agreed to further extend the time for delivery of the goods to mid-March 2006 for the Female Orders and end of February for the Male Order. 

8.  Miss Lee claims that by 13 January 2006 at the latest, it was apparent to both Wing Yan and Ontrend that the end of February deadline for the Female Orders could not be met.  In view of the then approaching Chinese New Year holidays, Miss Lee alleges that in the course of one of her telephone conversations with Carmen of Ontrend on 13 January 2006, Miss Lee proposed and Carmen agreed that the delivery of the Female Orders would be postponed to mid-March 2006 and the Male Order to end of February 2006.  She admitted that she had to seek confirmation on the revised delivery dates by an email at 5:39pm on 13 January 2006.  Miss Lee’s email reads :

“ Delivery : For the men style, the delivery will be end of Feb, and for ladies, the delivery will be mid of March, please confirm by return.  Thanks!!”

9.  The response Miss Lee obtained from Carmen was not an unequivocal confirmation, but a request for a meeting.  Carmen’s email of 13 January 2006 at 6:32pm reads :

“ As per phone conversation with you this evening, I prefer you come to HKO discuss everything next Monday, please confirm upon receipt.”

10.  According to Miss Lee, she was informed by Carmen on 13 January 2006 that Mr. Sajnani wished to discuss the postponement of delivery with her in person.  On 16 January 2006, Miss Lee attended Ontrend’s office and met with Mr. Sajnani.  She claims that after explaining to Mr. Sajnani the constant changes in specifications and the approaching Chinese New Year holidays, the Orders could not be completed in time for delivery by the 1^st Extension.  Miss Lee claims that she proposed, and Mr. Sajnani agreed at the Meeting, to revise the delivery dates to the end of February 2006 (after the Chinese New Year) for the Male Order and mid-March for the Female Orders.

11.  Mr. Sajnani’s evidence on the Meeting is that as opposed to an agreed extension as Miss Lee alleges, he had told Miss Lee that the proposed new shipment dates were too late and that Prague would most likely cancel the 3 Orders as a result.  Mr. Sajnani explained in his evidence that the Orders were for sale for the summer season of 2006 and Prague needs time to distribute the goods to retailers, and as it takes about 20 days to ship the goods by sea from Hong Kong to Prague, a shipment date in mid-March 2006 as suggested would be too late as it would mean that Prague would miss the 2006 summer season.

12.  Mr. Sajnani claims that Miss Lee had pleaded with him at the Meeting not to cancel the Orders, saying that the bulk fabric for manufacturing the garments had just arrived, and if the Orders were canceled, Wing Yam would be stuck with a large quantity of the fabric.  Mr. Sajnani said that he had felt sorry for Miss Lee, and told her that he would speak to Prague to see if they would be willing to grant a further extension to mid-March as sought by Wing Yan.  He had said that he would try his best, but had explained that there was no guarantee that a further extension would be granted, claiming that he had re-itereated to Miss Lee that the ultimate decision was up to Prague, and not Ontrend or himself.  Mr. Sajnani was adamant that he had not said to Miss Lee at the Meeting that an extension would be granted for any of the Orders.  He accepted that it was possible that he might have informed Miss Lee that at the most, Prague might agree to extend the shipment date for the Male Order to end February 2006, being the agreed shipment date for the Female Orders under the 1st Extension.

13.  According to Mr. Sajnani, he did tell Miss Lee at the Meeting to continue the pre-production samples, but had warned her that he was not sure if Prague would accept the late shipment.  His evidence is that at this time, Wing Yan had just commenced work on the pre-production samples, having only finalized the components of the garments such as the lining, zippers, etc. a few days earlier, and Mr. Sajnani had wanted the pre-production samples to be finished quickly and to have them approved for bulk production without further delay.   He had said that Ontrend would make comments immediately on the pre-production samples of the Female Orders should they be ready at the end of January 2006. 

14.  According to Mr. Sajnani, Prague ultimately refused to agree to the further extension sought and decided on 10 February 2006 to cancel the Orders, for the reason that the goods would not be ready in the expected time.

15.  Miss Lee, on behalf of Wing Yan, referred repeatedly to evidence in an attempt to explain that the delay in the production of the goods was due to constant changes made in the specifications for the goods and delay in approval of colors or assessories for the garments.  However, Wing Yan has not at any stage pleaded that any delay in the delivery of the goods under the Orders was caused by any fault or breach of contract on Ontrend's part.  It only pleads that the time for delivery of the goods had been extended by mutual agreement to mid-March 2006 for the Female Orders, and to February 2006 for the Male Order, and that Ontrend is in breach of contract for failing to take delivery by these dates.  On the face of the pleadings, therefore, the cause of the further extension sought is not in issue.

16.  Despite the pleading of the agreed, second extension made on 13 January 2006, and although Miss Lee maintains in her evidence that there was such an extension agreed at the Meeting, the contemporaneous e-mails do not support Wing Yan's claim.  The emails exchanged between Carmen of Ontrend and Miss Lee of Wing Yan on 13 January 2006 contradicts Miss Lee's claim of an extension agreed on 13 January 2006.  Her own e-mail sought Carmen's confirmation by return.  In her reply, Carmen only mentioned that she preferred a discussion at Ontrend's office on Monday, 16 January 2006.

17.  After the Meeting, there was no e-mail which confirmed a further extension after end February 2006.  Mr. Sajnani's case is that there was no such confirmation of or reference to any further extension, because no such confirmation of extension had been given at the Meeting.  Wing Yan sought to argue that the e-mails subsequent to the Meeting did not mention that there was no further extension either.  Miss Lee also sought to explain that as at 16 January 2006, bulk production on the fabric and assessories on the Female Orders had not commenced, and the fabric had not been cut, so that even if the Orders were canceled at that stage, Wing Yan would only have suffered minimal loss.  However, once the fabric is cut and bulk production commences, Wing Yan would suffer a total loss of the fabric and significant loss of labor in the development of the samples, such that Wing Yan would not have continued production under the Female Orders if a further extension had not been actually agreed between herself and Mr. Sajnani at the Meeting.  If the agreement on a further extension was indeed as important to Wing Yan as Miss Lee sought to explain, then it would make it more likely, and it would have made more sense, for Miss Lee to confirm such extended shipment date in one of her e-mails after the Meeting.  There was no such confirmation.

18.  During the course of the parties' exchange of e-mails after 16 January 2006, at no time did Wing Yan object to Ontrend's cancellation of the Orders, or the subsequent negotiations on the discounted price, by reference to there having been an agreed extension up to mid-March 2006, or end February 2006 for the Male Order.  Counsel for Ontrend highlights the fact that it would only have been natural for Wing Yan to have so protested, if there had indeed been an agreed extension.

19.  The only point which assists Wing Yan's case of a further extension is that after the Meeting, Ontrend's e-mail of 8 February 2006 pressed for shipment samples and the inspection date for the Male Order, referring to shipment of the Male Order at the end of February 2006, which is consistent with Wing Yan's pleaded case regarding the date for delivery of the Male Order under the alleged second extension.  Mr. Sajnani's only explanation is that he might have informed Miss Lee that Prague might agree to extend the shipment date for the Male Order only up to end February 2006, which is consistent with the shipment dates for the Female Orders under the 1st Extension, but that such agreement on Prague's part was not confirmed.

20.  Having considered the opposing evidence of Miss Lee and Mr. Sajnani, and the detailed explanations given by Mr. Sajnani for Ontrend’s actions, including his explanations regarding why Ontrend continued to press for pre-production samples of the Female Orders in February 2006, and regarding the e-mail of 8 February 2006, I consider that against the background of the contemporaneous exchanges of e-mail, there is a more probable ring of truth to Mr. Sajnani's evidence concerning the Meeting.  I accept his evidence that he had only informed Miss Lee that he would see if Prague would agree to the further extension but there was no guarantee.  If Wing Yan had decided to take this as an agreed extension, then they had done so at their own risk. 

21.  It is not appropriate, as seems to be suggested by Miss Lee, for the court to speculate in this case as to why Wing Yan would have cut the fabric and commenced production under the Female Orders if there had been no firm agreement of a further extension of time at the Meeting, but in any event, there might have been many commercial reasons to justify Wing Yan in so doing.  Mr. Sajnani's evidence is that he had informed Miss Lee that he would do his best to persuade Prague to agree to the extension, provided that Wing Yan would continue working on the pre-production samples and not delay Ontrend's approval thereof.  I cannot accept Wing Yan's decision to cut the fabric after the Meeting as unequivocal evidence of an agreement having been reached at the Meeting on a further extension.

22.  I bear in mind that the onus is on Wing Yan, the Plaintiff in these proceedings, to prove the alleged, extended date for delivery. On the evidence, I am not satisfied that Wing Yan has discharged this burden of establishing that the parties had agreed to extend the time for delivery of the goods under the Female Orders to mid-March 2006, and under the Male Order to end February 2006, as alleged.

Was Wing Yan in breach of contract by failing to deliver the goods within the agreed time?

23.   Having rejected Wing Yan's evidence of the parties' agreement to extend the time for delivery of the goods beyond end February 2006 for the Female Orders, and 29 January 2006 for the Male Order, the next issue for determination is whether Wing Yan was in breach of contract by failing to deliver the goods within such time, as agreed under the 1st Extension.

24.    On the evidence, Ontrend was still awaiting the pre-production sample for the Female Orders by 16 January 2006, as apparent from Carmen's e-mail of that date.  On 16 January 2006, Ontrend was asking for these pre-production samples to be received for approval before Chinese New Year.  On 23 January 2006, the bulk pocket lining and the bulk embroidery were apparently approved.  On 8 February 2006, Carmen was still asking when Ontrend would be receiving the pre-production, salesmen and photo samples for the Female Orders, as can be seen from her e-mail.  Pre-production samples are submitted before bulk production commences.

25.  It was only on 3 March 2006 that Wing Yan e-mailed Ontrend to arrrange for inspection of the goods under the Female Orders.

26.  With regard to the Male Order, Ontrend was only invited to inspect the goods on 27/28 February 2006, by Miss Lee's e-mail dated 21 February 2006 which reads as follows:

"Please arrange the inspector to come to our factory to have inspection of P346 on next Monday or Tuesday, depends on your arrangement, thanks !"

27.  According to the evidence of Ontrend, inspection of goods should take place at least 10 days before the shipment date, so that there would be sufficient time for the quality controller to visit the factory in China, to inspect the finished products, to pack the goods, and for loading if the goods pass the inspection.

28.  It was only on 21 February 2006 that Wing Yan asked Ontrend to inspect the goods under the Male Order on the following Monday or Tuesday, 27 or 28 February 2006.  According to the evidence of Mr. Chu of Ontrend, if the goods were to be inspected on 27 or 28 February as requested by Wing Yan, even if they should pass inspection, the goods have to be packed and made ready for shipment, and the earliest time for the goods to be shipped would be approximately 10 days (Mr. Chu later said 6 to 8 days) after 27 or 28 February 2006, which would be between 5 March to 8 March 2006, after the agreed date of 29 January 2006 under the 1^st Extension.  Even if, on Wing Yan’s case, the Male Order was extended to end of February 2006 under the alleged further extension, the shipment would still be late.

29.  On the same reckoning according to Mr. Chu’s evidence, as the goods under the Female Orders were only offered for inspection on 3 March 2006, the earliest time by which they could be shipped was 9 to 11 March 2006, which was after the end February date agreed under the 1^st Extension.

30.  Under the Orders, the goods were to be “shipped by” a specified date.  On the evidence, they could not be so shipped by end February 2006 under the Female Orders and by 29 January 2006 by the Male Order.  Wing Yan are accordingly in breach of contract.

Was Ontrend entitled to treat Wing Yan's breach as repudiation of contract and to accept such repudiation?

31.  By reason of the findings I made as set out in paragraphs 28 and 29 above, I am satisfied on the evidence that Ontrend was entitled to cancel the Orders, as it purported to do on 10 February 2006, and as so pleaded in paragraph 10 of the Amended Defence and Counterclaim.

32.  After 10 February 2006, the parties had engaged in further correspondence by emails to negotiate possible discounts to the price of the goods under the Orders if they were to be accepted by Prague notwithstanding the delay.  Although Prague agreed by 27 February 2006 to accept the goods with a 20% discount, this was not accepted by Wing Yan which was only prepared on 3 March 2006 to pay for the air freight charges.  On 7 March 2007, Prague decided to cancel the Orders notwithstanding the air freight proposal, and Wing Yan was informed of this on 9 March 2006.

33.  I am satisfied that Ontrend had on the evidence accepted Wing Yan’s repudiatory breach of contract.

What was Ontrend’s damage sustained as a result of Wing Yan’s breach?

34.  Miss Lee on behalf of Wing Yan does not dispute that she was aware that Ontrend was purchasing the goods on behalf of its customer, Kenvelo.  She accepted that Ontrend was a "middleman" in the transaction.  According to Mr. Sajnani, it was not possible to find another supplier to manufacture the goods in time for sale to Kenvelo for the 2006 spring/summer season.  On the evidence, I am satisfied that Ontrend is entitled to the profit lost on the resale of the goods, in the amount of US $21,498.

Conclusion

35.  Wing Yan's claim against Ontrend in the action is accordingly dismissed, and judgment is granted in favor of Ontrend on its counterclaim for the sum of US$21,498, and interest thereon at judgment rate from the date of the service of the Counterclaim to the date of judgment.  I will make an order nisi that the costs of the action including the counterclaim are to be paid by Wing Yan to Ontrend, with certificate for counsel, to be taxed if not agreed.  Unless an application is made to vary this order nisi, the order shall become absolute 14 days after this judgment is handed down.